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Financial Markets Today: Quick Take – July 20, 2022

Macro 6 minutes to read
Saxo Strategy Team

Summary:  US equities recorded their best gains so far this month, propelled by strong earnings from Netflix lifting the tech sector, softer US data paring expectations for the most aggressive Fed case, and a pull-back in US dollar. Recession concerns eased, especially with hopes of Russia restarting gas supplies to Europe. US 10-year Treasury yields rose back above the 3% mark, while crude oil reversed some of its gains overnight ahead of the EIA report due today. Tesla earnings remain on watch today, and ECB’s rate lift-off is the next key market catalyst with a leak suggesting possible 50bps hike and some light on the anti-fragmentation tool this week.

Note: The Saxo Market Daily Podcast will return on Monday July 25

What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)

US equity futures continued to trade higher, although much milder than the overnight gains which were fueled by stronger than expected earnings results and the continuation of a technical rally. Netflix (NFLX) shares jumped 7.9% after hours on seeing a return to growth this quarter. The streaming service giant lost 970,000 paying customers this quarter, much less than the than the 2 million Netflix predicted. Growth in the Asia-Pacific region offset most declines with Netflix adding 1.1 million customers in APAC, after cutting prices in India. This quarter, Netflix expects subscriber growth to rise by 1 million. These were both surprises to the upside. A weaker dollar also helped equities to propel, as aggressive rate hike bets from the Fed continued to be pared on the back on weaker-than-expected US housing starts reports for June. Key corporate earnings today include Tesla and ASML.

EURUSD could test 1.0350 resistance if tailwinds materialize

EURUSD surged overnight amid a possible Reuters leak about the European Central Bank considering a 50bps rate hike this week. The report also suggested that the central bank may also have some light on their anti-fragmentation strategy ready to protect peripheral European markets. With market pricing still at 37.5bps for the July meeting, this could mean some potential upside for EURUSD at the knee-jerk. A separate Reuters story also hinted that Russia could restore the gas supplies once maintenance works on the NordStream 1 pipeline is completed this week. If both these tailwinds materialize, EURUSD could be on track to re-test the 1.0350 resistance.

GBPUSD pushed higher by hawkish BOE Governor

GBPUSD reclaimed the 1.2000 handle after better-than-expected jobs data yesterday and there were also comments from BoE Governor Bailey that 50bps is among the choices at the next meeting but is not locked in. UK CPI came out at 9.4% y/y vs. 9.3% y/y expected, but it is likely to print new highs further into October, and does not materially change the rate hike trajectory for BoE.


While supply concerns, including lack of commitment on Saudi supply, have been driving price action in the oil market this week, the weakness in the dollar also remains a big factor. Brent futures tested the $108/barrel resistance but eased slightly overnight, while WTI futures fell below $104. The API report showed a slight build in US oil inventories last week, with US crude stocks rising by 1.9 million barrels for the week. Official weekly crude and fuel inventory data from the U.S. Energy Information Administration (EIA) is expected to be released today at 1430 GMT.

Copper gains on risk aversion

HG copper gained over 2% after finding support at $3.15/lb last week, a key level representing a 61.8% retracement of the 2020 to 2022 rally. With hopes of Russian gas supplies being restored, recession fears have eased for now, helping to revive the risk sentiment globally. A less aggressive Fed action expectation has also aided sentiment. On the contrary, more restrictions in China amid a fresh surge in Covid cases have continued to be a dampener on gains, and volatility is likely to continue.

Hopes for Iron ore prices to rally intensify after Vale’s cut production, forcing markets to focus on a supply glut

The iron ore price (SCOA, SCOQ2) charged 3.2% in the APAC session, moving back over $100 for the first time in three days. It was boosted by Vale (VALE), the worlds’ second biggest iron ore supplier cutting its annual production guidance, expecting to produce 310-320 million metric tons of iron ore in 2022, instead of the previous forecast of 320-335 million tons. This is a bullish revision for iron ore, particular as iron ore demand has slowed from China. BHP and Rio Tinto both flagged of global growth slowing and that turbulent times will continue, pointing their biggest consumer’s (China) lockdown.  That being said, the market is holding its breath for the last export figures from Australia, which will show how much iron ore exports rose in June. The prior month showed iron ore exports rose 2.5% m/m. We will need to see shipments rising to China before we can expect the iron ore price to move up. 

ASML reported profit beat but a cut in outlook

Dutch semiconductor equipment maker ASML Holdings (ASML) reported higher second-quarter net profit amid record new bookings. Net sales for the quarter came in at EUR5.43 billion compared with EUR3.53 billion for the year-earlier period, while net profit was EUR1.41 billion from EUR695 billion in the year-ago period. Gross margin of 49.1% was in-line with company guidance of 49-50%. Expected sales growth for 2022, however, is cut to around 10% from ~20% previously, as it will likely be delaying booking part of the revenue due to deliveries before quality checks.

What is going on?

ECB policymakers may discuss a 50-basis points interest hike this week

A Reuters story suggested that the ECB may look at a 50bps rate hike on Thursday. Until now, most policymakers (such as the Governor of the Bank of Finland, Olli Rehn, last week) have pledged in favor of a 25-basis points interest hike. But market pressure is increasing in favor of a bolder move due to concerns the ECB is behind the curve. Our baseline given recent forward guidance is that the ECB will commit to 25 basis points in July (this can be considered as an « appropriate step ») before a larger move in September – most likely a 50-basis points interest hike. The ECB Governing council will also likely agree on a deal to make new bond purchases conditional on the Next Generation EU targets (the stimulus plan unveiled after the Covid). This is still unclear how much details will be announced about the anti-fragmentation tool, however. At the moment, the money markets bet on about 100 basis points ECB rate hikes in September. This is optimistic.

China loan prime rates left unchanged

The People’s Bank of China (PBoC) kept the one-year and five-year loan prime rates unchanged at 3.70% and 4.45% respectively as expected. Still, economic and financial risks are rising. New Covid cases have reached close to 1000, again questioning the commitment to Zero-Covid policy. Meanwhile, property market shocks continue to send ripples after homebuyers were reported to be boycotting mortgage payments. Hopes of an RRR cut are building to replenish liquidity into the banking system.

US housing starts slowdown pares bets for a highly aggressive Fed

U.S. housing starts fell to 1.559 million in June, its lowest since September. Demand is easing from the pandemic era boom and with mortgage rates higher, many buyers are staying on the sidelines for now. This is key for the Fed, with Waller hinting earlier that they will be watching it to consider if tightening needs to be more aggressive. This has again boosted the possibility of a 75bps rate hike next week rather than 100bps at this point, but the doors of a 100bps are also still not completely shut.

Chip makers on the up ahead of Congress voting on funding the CHIPS Act

Fresh steam has been put under chip makers as some raw materials prices have fallen, but more broadly, US domestic semiconductors/chip manufacturers, could get a $52 billion government subsidy, aimed at making the US self-sufficient and less reliant on China. The US senate votes on Tuesday and after the Senate vote, the House of Representatives will need to approve the CHIPS Act funding before submitting it to the White House for signing. Funding was originally part of a larger competition and innovation bill, that was held up in Congressional negotiations. However now, Congress leaders hope to get funding passed before they go on recess on August 8. If passed into law, it will be a huge victory for chipmakers like Intel, Taiwan Semiconductor etc.

What are we watching next?

Earnings on tap today

Tesla (TSLA) will be the key company earnings to watch today, both because it signals the risk sentiment and because it is one of the big constituents of S&P500. Covid lockdowns in China have severely constrained the EV-maker in Q2 with deliveries falling q/q for the first time in more than two years. At the same time, the EV-maker has production difficulties at its factories in Texas and Germany, and competition is heating up from most notably Volkswagen and BYD. Also worth watching today will be earnings from the energy sector as Baker Hughes (BKR) reports after rival Halliburton (HAL) beat yesterday and provided guidance for ‘multi-year upside’ in oil.

Earnings Watch

This coming week we will see results from a very diverse group of companies.  A preview of Q2 earnings releases can be read on the trading platform or here.

  • Wednesday: Tesla and United Airlines
  • Thursday: AT&T, Union Pacific and Travelers
  • Friday: American Express and Verizon

Economic calendar highlights for today (times GMT)

0600 – UK June CPI
1230 – Canada June CPI
1400 – US Existing Home Sales
1430 – EIA’s Weekly Oil and Fuel Inventory Report

China Update: Homebuyers refusing to repay mortgages of uncompleted housing projects heightened risks in China’s troubled property sector
The clock is ticking for Italy (once again)
Chart of the Week: Semiconductor Supply Glut Coming?

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Saxo Spotlight: What’s on investors and traders radars this week?

Commodity Weekly
Peak recession fears bring commodities down to earth

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